Study co-director Richard Schmalensee, the Howard W. Johnson Professor of Economics and Management at the MIT Sloan School of Management, says the two-year study came about “because a number of us were hearing two sorts of rhetoric” about the U.S. power grid: that it’s on the brink of widespread failure, or that simply installing some new technology could open up wonderful new opportunities.
“The most important broad finding was that both of these are false,” Schmalensee says. While the grid is not in any imminent danger, he says, “the current regulatory framework, largely established in the 1930s, is mismatched to today’s grid.” Moreover, he adds, today’s regulations are “highly unlikely [to] give us the grid of the future — a grid that by 2030 will support a range of new technologies and consumer services that will be essential for a strong and competitive U.S. economy.”
The report was commissioned by the MIT Energy Initiative (MITEI) and carried out by a panel of 13 faculty members from MIT and one from Harvard University, along with 10 graduate students and an advisory panel of 19 leaders from academia, industry and government.
While the grid’s performance is adequate today, decisions made now will shape that grid over the next 20 years. The MIT report recommends a series of changes in the regulatory environment to facilitate and exploit technological innovation. Among the report’s specific recommended changes: To enable the grid of the future — one capable of handling intermittent renewables — the United States will need effective and enhanced federal authority over decisions on the routing of new interstate transmission lines. This is especially needed, the report says, in cases where power is produced by solar or wind farms located far from where that power is to be used, requiring long-distance transmission lines to be built across multiple regulatory jurisdictions.
“It is a real issue, a chicken-and-egg problem,” says John Kassakian, a professor of electrical engineering at MIT and the study’s other co-chair. “Nobody’s going to build these new renewable energy plants unless they know there will be transmission lines to get the power to load centers. And nobody’s going to build transmission lines unless the difficulty of siting lines across multiple jurisdictions is eased.”
Currently, when new transmission lines cross state boundaries, each state involved — and federal agencies as well, if federal lands are crossed — can make its own decisions about permission for the siting of these lines, with no centralized authority.
“There are many people who can say no, and nobody who can say yes,” Schmalensee explains. “That’s strategically untenable, especially since some of these authorities would have little incentive ever to say yes.”
The MITEI report recommends that the Federal Energy Regulatory Commission (FERC) either be given the authority to make decisions in such cases, or be designated as the “backstop” authority in cases where there are disputes.
The grid would also benefit from a restructuring of the way customers pay for its costs, the study found. Payment for electric distribution, like payment for generation, is currently calculated based on usage. But most of the costs involved are fixed; they don’t depend on usage. This gives utilities incentives to resist distributed generation, such as homeowners installing rooftop solar panels, and gives consumers excessive incentives to install such systems — and thereby to shift their share of fixed network costs to their neighbors. Fixed network costs, the reports says, should be recovered primarily through customer charges that don’t depend on electricity consumption.
In addition, while many utilities have begun to install “smart meters” for their customers, most of these are not yet being used to provide feedback to customers that could shift electricity usage to off-peak hours.
“We haven’t done as much as we could to develop this capability, to learn how to do this,” Schmalensee says. “It could save everybody money, by cutting down the need to build new generators.” While overall growth in demand is expected to be modest and easily accommodated, without new policies peak demand will rise much faster, requiring new generating capacity. “We continue to build capacity that’s only used a few hours a year,” he says. Providing consumers with better price signals and the ability to play a more active role in managing their demand could significantly improve this imbalance, the report says.
Another area that will require restructuring, the study concluded, is cybersecurity: The more thoroughly the grid is interconnected, and the more smart meters are added to gather data about usage patterns, the greater the risk of security breaches or cyberattacks on the system.
At the moment, no agency has responsibility and authority for the entire grid. The report strongly recommends that some agency — perhaps the U.S. Department of Homeland Security — be given such responsibility and authority, but thorny issues related to authority over local distribution systems would need to be resolved. In addition, the report notes, it will be important to develop rules and systems to maintain the privacy of data on customers’ electricity usage.
Requiring the sharing of data, especially data collected as a result of federal investments through the American Recovery and Reinvestment Act of 2009, should be a significant priority, the report says. The government “spent a lot of money on pilot programs and experiments, and installations of a lot of new equipment that can improve the efficiency and reliability of the grid and the management of demand,” Kassakian says. But there needs to be more cooperation and communication about the results of those programs “in order to get the benefits,” he says.
In fact, widespread sharing of data from real-time monitoring of the grid could help prevent some failures before they happen, Kassakian says: “If you’re aware of what’s happening at the same time everywhere, you can observe trends, and see what might be an incipient failure. That’s very useful to know, and allows better control of the system.”
The MITEI study found that growth in the number of electric vehicles (EVs) on the road is likely to be slow enough, and widely distributed enough, that it shouldn’t create significant strain on the grid — although there may be a few locations where a particularly high penetration of such vehicles could require extra generating capacity. Some other effects could be subtle: For example, in some hot regions of the Southwest, grid components such as transformers are designed to cool off overnight when demand is ordinarily low. But a sudden influx of EVs charging at night could necessitate bigger transformers or cooling systems, while charging them at the end of the work day could significantly increase peak demand and thus the need for new capacity.
Utilities now spend very little on research, the study found, because regulators provide little incentive for them to do so. The report recommends that utilities put more money into research and development — both to make effective use of new technologies for monitoring and controlling the grid, and on customer response to pricing policies or incentives.